Boutiques’ rental row

A men’s and women’s retailer which has been operating since 1975 has revealed its Westfield outgoings to Ragtrader, pleading for anonymity out of fear it may fall out with other landlords. The indie retailer revealed how it was forced to shutter four stores over 2010/11 after the shopping centre giant looked to nearly double its expenses.

Westfield advised the retailer its $276,000 per annum lease at Burwood could be renewed for an annual rate of $418,000, after its lease expired in August 2011. The giant put the hike down to market demands, confirming other interested retailers were willing to pay that amount for a site at the centre.

While this figure came down to $380,000 after negotiations, the retailer was required to conduct a total refurbishment of the store, which had been at the centre for ten years.

“This would have added another $200,000 to the cost on our part,” the retailer said. “We’ve now closed three Westfield stores and another in a shopping centre in Rouse Hill because it’s just not sustainable anymore. Now we have one store in a centre and five others stores located on shopping strips.”

The retailer said rent increases equivalent to the CPI, plus two per cent each year, were simply not feasible in a climate marked by falling revenue, increased competition from online retailing and low consumer sentiment.

“There’s the question of why we sign up for these leases in the first place, when the costs per square metre are so high. When we agreed to take on the five year lease, the trading environment was powering along but in the last two to three years, the market has begun falling into a heap. Rather than adjusting to these conditions like other retailers and suppliers, landlords simply continue to raise the rates.”

Westfield declined to comment on this story when contacted by Ragtrader. However these concerns have been echoed by other retailers in recent months, both in submissions to the Productivity Commission’s inquiry into retail and media outlets. Premier Investments won a 30 per cent reduction in retail rents after threatening and enacting closures of the group’s loss-performing stores. Head Mark McInnes told journalists the balance of power needed to be restored.

“There is a disconnect between the CPI-plus rent increases and centre performance at the moment and all retailers are having this argument with landlords,” he said. “We don’t come to work every day just to make money for the landlord.”

The concerns are backed by a leasing report from financial services firm Morgan Stanley, which revealed Australian retailers are paying significantly higher rents than offshore retailers in comparable markets. The biggest gaps occurred in the specialty retail sector, where domestic players were stung around three times high than similar businesses in the US.

The June 2011 report found Westfield Specialty Retail paid the most for shop space, with an average of US$1,428 per square metre This was followed by Premier Investments which paid US$1,202 per square metre. In contrast, US powerbroker Limited Brands, which operates majors such as Victoria’s Secret, paid US$421 per square metre and clothing retailer GAP paid US$424 per square metre.

Morgan Stanley concluded that even domestic department stores were globally disadvantaged, with Myer paying US$227 per square metre and David Jones US$206 per square metre compared to American rival Saks, which clocked in at US$149 per square metre.

In a 40-page submission to the Productivity Commission, Westfield defended these lower rates for department stores, stating they contributed more capital to store construction, took longer leases, larger stores and attracted foot traffic from which specialty stores benefited. It also defended high retail rates in Australia as a product of market forces.

“Rents are a function of the availability of retail floorspace in each market. The United States has lower rents but approximately double the floorspace per capita of Australia. The United Kingdom has higher rents than Australia but about 40 per cent less floorspace per capita than Australia.”

The Productivity Commission will deliver its final report to the federal government this month.

Assia Benmedjdoub